Telkom shares slump 5% as investors seek KT Corp clarity

Shares in Telkom took a dive in midday trade on Thursday as investors seek clarity on the expertise that Korean telecoms group KT Corp can bring to the table, while the possibility of a R4.5 billion fine also lingers.

By 11.55 local time, shares in the group slipped 5.35% to R22.81, before moving back up to R23.46 (an intraday loss of 2.66%) shortly after noon. The All Share Index traded 0.86% higher to 33,252 points.

A dealer noted high volume trade in the group’s stock. “Either someone knows something or a fund manager has dumped their shares,” he said.

Telkom is awaiting the outcome of a market abuse case which could see the firm fined up to R4.5 billion.

The Competition Commission has asked the Competition Tribunal to find Telkom guilty of excessive pricing and market abuse.

Earlier this month, Telkom announced that it had reached an agreement regarding the terms of a potential strategic venture with KT Corporation, however, at a revised cash issue price due to a decline in its share price.

KT is close to acquiring a strategic equity shareholding of 20% in the post-issue ordinary share capital of Telkom by way of a specific issue of shares for cash.

“Shareholders are advised that Telkom and KT have agreed to a revised cash issue price for the new Telkom ordinary shares to be issued to KT under the Potential Equity Investment of ZAR25.60 per new Telkom ordinary share,” Telkom said in a statement on 8 May.

Suraj Sookdew, RMB portfolio manager told BusinessTech: “While the price offered is much lower than the one first announced, market commentators are encouraged by the developments and hope to see an injection of expertise into Telkom, providing strategic direction to the company. It is further expected that KT will provide cost saving initiatives as well as expertise on data, given their knowledge of the South Korean market, in order for Telkom to keep up with the other telecom players locally.

“With KT being a 20% shareholder, it is hoped that government interference will be minimal, and that the business case for the company is taken forward. Only time will tell,” the analyst said.

Industry focus will shift towards Telkom next week as the group is expected to report its annual results on Friday (8 June).

In March the company announced that it expects its headline earnings per share (HEPS) to fall by at least 25% for the year ending 31 March 2012.

Basic earnings per share from continuing operations for the year ending 31 March 2012 are expected to be at least 90% lower than the prior year.

Telkom further announced that headline earnings per share are expected to be at least 25% lower than the prior year.

Telkom said that the decrease is mainly attributable to the recognition of a net loss of R950 million on the disposal of the Multi-Links foreign operation, and the impairment of iWayAfrica of approximately R550 million.

For the year ended March 2011, the group announced operating revenue down 3.2% to R16.4 billion.

Voice revenue decreased 5.5% to R6.6 billion, and data revenue decreased 7.9% to R5.1 billion. Basic earnings per share decreased 70.8% to 85.2 cents per share and headline earnings per share from continuing operations decreased by 35.5% to 191.7 cents.

8.ta conundrum

Telkom pointed out that 8ta is also costing the group’s shareholders a lot of money. Telkom said that the EBITDA loss incurred by the mobile business (8ta) is approximately R2.2 billion.

For 2011, 8.ta achieved revenue of R81 million and an EBITDA loss of R1.103 billion. “As a result of our delayed launch and network and systems build out our guidance with regard to break-even EBITDA is pushed out to the financial year ending 31 March 2014,” it said.

“Companies in South Africa want the full telecoms service being data and voice, and a mobile service is part of the voice offering. It was therefore necessary for them (Telkom) to offer the 8.ta mobile service,” said Sookdew, when questioned about the success of the group’s mobile arm.

“Given the SA government holding in Telkom, we do not foresee the breaking up of Telkom SA and assets being sold off,” he said when questioned about possible options available to the company as it continued to bleed cash.

“Results from Telkom are expected in the first week of June, and we would like to see them highlight some of the expertise that KT can bring to the table. The company has been directionless for some time, and we would like Telkom’s outlook as well as what strategic initiative they will be adopting.

“On the negative side, the recent court order obtained by ZTE Mzansi halting the R13 billion network infrastructure project, the potential R4.5 billion anti-competitive fine and the worse than expected trading update will continue to have a drag on the share price,” Sookdew concluded.

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Telkom shares slump 5% as investors seek KT Corp clarity